By: AnnaMarie Mock, CFP®
In Part 1 of F.I.R.E., we explored the meaning behind the movement and the different variations. According to a survey conducted by T.D. Ameritrade and the Harris Poll, only 11% of 1,500 respondents, have heard of the movement, while 26% are not familiar with the term but know the concept.
That means 2/3 of the American population may not have heard of F.I.R.E. yet. However, there has been a 94% increase in google searches for "Financial Independence Retire Early" in the last five years, so it’s gaining momentum. As F.I.R.E. is turning into a buzzword and is catching the media's eye more, the core principles may be misconstrued and layered with misconceptions.
What are some common misconceptions?
Myth 1) One must save 80% of their income. According to the poll, 68% would rather retire at a reasonable age and enjoy life during the accumulation phase, i.e., the period you are earning and saving money. For most, it's not a mythical quest to live frugally to save as much as possible in a brief period. Instead, adopters emphasize living within their means to save and invest by taking advantage of compounding interest from an early age.
Myth 2) The journey to F.I.R.E. is about deprivation. Most financially independent individuals realize there may be lifestyle limitations and tradeoffs in the short term, but there are boundaries. 67% believe F.I.R.E. is not worthwhile if they need to "live like they are broke."
Instead, F.I.R.E. is about reprioritizing what matters most to you and shifting from living materially to living intentionally. Setting goals trigger new behaviors and momentum to implement and make financial progress. Being mindful of the tradeoffs allows for adjustments to expectations or behaviors to maintain progress in your action plan.
Myth 3) You need to make uber bucks. The funds required to be financially independent are very subjective. The cash flow needs of a school teacher or financial advisor will not be the same as a professional athlete. The number required to fund your nest egg depends on your lifestyle spending habits. In general, you may need to save 25 to 30 times your annual salary. (Please note - many factors go into that determination which will be covered in Part 3 of this series). It's essential to create a spending plan as a blueprint for your money that provides actionable steps to spend money intentionally without guilt. Mindful spending is awareness around how you think, feel, and act with money, helping to answer these critical questions - How much will I need to spend each year in retirement? How much can I save and invest now? How can I live within my means while saving for the future?
Myth 4) It's only about retiring early. As I mentioned in Part 1, F.I.R.E. involves a shift in perspective regarding money and work, prioritizing what is most important to your work-life balance, and making decisions not dictated by the need to earn money but the ultimate goal of financial freedom. About 74% of the 1,500 pollees indicated financial security and peace of mind is more important than actually retiring earlier, while 43% plan to continue working even once they meet the asset threshold needed to retire because they genuinely enjoy it.
Part 3 in the series will cover how to determine what definition of F.I.R.E. applies to you.
AnnaMarie Mock is a CERTIFIED FINANCIAL PLANNER™ and Partner at HIGHLAND Financial Advisors, LLC, a Fee-Only financial planning firm that offers comprehensive financial planning, retirement planning, employer retirement planning, and investment management. AnnaMarie graduated from Montclair State University with a degree in finance and management and successfully passed the CFP® national exam in 2016. She has been working at Highland Financial Advisors since 2013 as a fee-only, fiduciary Wealth Advisor and is a member of NAPFA.